Article excerpt

Government trustbusters are pursuing big-name companies like Microsoft with a zeal not seen in decades, but top economists are questioning whether the new activism is justified given today's fierce business competition and low prices.

Household names like American Airlines, MasterCard, Visa, Intel and Office Depot have come under attack for purportedly obstructing competition, though economists regard their markets as among the most competitive in modern times, with consumers often confused if not dazzled by the array of choices.

Prices for air fares, credit cards, computers and software have been more notable in recent years for dropping than for rising, as would be expected in markets with little competition like those dominated by the oil cartels in the 1970s, economists say.

Yet the pace of new investigations and lawsuits by the Justice Department and Federal Trade Commission has picked up even as prices and the overall inflation rate declined to 30-year lows.

By targeting the nation's richest man, Microsoft Chief Executive Bill Gates, and some of the country's best-known corporations, the trustbusters also have touched off a political war with high stakes. Voters in the 2000 elections will decide which party controls not only the White House but the narrowly divided House of Representatives.

Before the Justice Department targeted software giant Microsoft in an antitrust trial that has already lasted several months, Mr. Gates was not a major contributor to political causes or parties. But when the department took sides in the lawsuit with Microsoft's Silicon Valley competitors - many of whom are contributors to the Democratic Party - that appeared to drive him into the Republican camp.

Now, GOP think tanks and activist groups like the National Taxpayers Union have weighed in with Microsoft. Some, like the conservative Heritage Foundation, are calling for the repeal of century-old antitrust laws to prevent the department from waging politically tinged lawsuits in the future.

The GOP-controlled Joint Economic Committee next week is showcasing Mr. Gates in a high-tech summit, while the White House cultivates its extensive ties with other high-tech entrepreneurs and trial lawyers who also benefit from the government's renewed activism.

For many economists, the political feeding frenzy - and the specter of time-tested laws being used to wage ill-conceived suits - is sickening.

In an open letter to President Clinton, 240 academic economists this month protested that many of the government's cases in the last year have been brought on behalf of competitors, not consumers. Yet the laws were designed to protect the public, not businesses, from predatory practices.

"Some firms have sought to handicap their rivals' races by turning to government for protection," pouring their energies into politics instead of competition, the economists wrote.

The result may be to "weaken successful U.S. firms and impede their competitiveness abroad," they said.

"The great mistake Silicon Valley has made is they called government in on themselves," said Nobel laureate Milton Friedman in a recent talk with John Berthoud, president of the National Taxpayers Union.

Mr. Friedman worries that the nation's high-tech industry, which rose to prominence with robust competition and now leads the world in innovation, will be dragged down by government meddling.

"They're going to spend in legal fees over the next ten or twenty years money which society would benefit from much more if it were spent [on the] Internet, home computers and the rest," he said.

Edward Yardeni, chief economist of Deutsche Morgan Grenfell Inc. in New York, said aggressive competition by Microsoft, Intel and other companies targeted by the government should be credited in part for licking inflation during the 1990s.

"I'm not saying Microsoft is clean - everybody recognizes they sometimes play dirty pool - but if the choice is letting Microsoft be Microsoft or letting the government decide what they do, I'd rather take my chances with the marketplace. …

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Global Business and Management Research: An International Journal, Vol. 4, No. 1, January 2012

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